The opinion of the court was delivered by: Gerard E. Lynch, District Judge
Plaintiff SimplexGrinnell LP brings this action against defendant Integrated Systems & Power, Inc. ("ISPI"), asserting a variety of claims centering around the rights and obligations of the parties in conjunction with an earlier settlement agreement between them in an unrelated bankruptcy proceeding. Specifically, SimplexGrinnell brings claims for copyright infringement, misappropriation of trade secrets, unfair competition through false advertising, and breach of contract. ISPI in turn asserts a breach of contract counterclaim. The case was tried before the Court without a jury on November 10 and 12, 2009. This Opinion sets forth the Court's Findings of Fact and Conclusions of Law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure. To the extent any Finding of Fact reflects a legal conclusion, it shall be to that extent deemed a Conclusion of Law, and vice versa. For the reasons stated below, the Court concludes that a limited injunction against ISPI is warranted to prevent further copyright infringement, misappropriation of trade secrets and unfair competition through false advertising practices, but not to the full extent requested by SimplexGrinnell.
I. Background to the Dispute
1. Plaintiff SimplexGrinnell manufactures, sells and services commercial fire safety systems nationwide.
2. Defendant Integrated Systems & Power, Inc. ("ISPI") is also in the fire safety system business and operates in New York and New Jersey. It does not manufacture its own brand of fire systems but rather primarily provides a variety of service functions, such as general inspections, servicing, maintenance and repair. (Guarino Aff. ¶ 50.*fn1
3. Thus, SimplexGrinnell and ISPI compete for service customers in the New York and New Jersey markets. (Id. ¶ 7.) Oftentimes, the division of labor works such that a customer will contract with SimplexGrinnell to install a fire alarm system at a particular site, and will thereafter retain ISPI to service and maintain the system.
4. Prior to 2002, SimplexGrinnell and ISPI were allies with a close business relationship. Indeed, ISPI originated in 1987 as a local service company for SimplexGrinnell's predecessor, the Simplex Time Recorder Company. (Id. ¶¶ 3-4.) From that time until 2001, ISPI, through its wholly owned subsidiary -- a company called Simplex of New York LLC -- operated effectively as a branch office of SimplexGrinnell and served as plaintiff's agent and representative in the New York City area. (P. Proposed Findings at 1; Guarino Aff. ¶¶ 3-4.) In 2002, SimplexGrinnell Terminated ISPI's agency agreement. (Guarino Aff. ¶ 3; Ex. B.)
B. Bankruptcy Proceedings and the 2004 Bankruptcy Stipulation
5. On September 26, 2002, ISPI (together with Simplex of New York City, LLC) filed for Chapter 11 bankruptcy protection. (Guarino Aff. ¶ 8; Ex. D ¶ A.) As part of its bankruptcy case, ISPI instituted an adversary proceeding against SimplexGrinnell, alleging, among other things, breach of contract and various business torts. (Guarino Aff. ¶ 10; Ex. D ¶ B.)
6. On May 6, 2003, the bankruptcy court granted ISPI a preliminary injunction requiring SimplexGrinnell to provide ISPI with all parts and equipment necessary for servicing ISPI's then existing customer base, at a contractually agreed upon price of fifteen percent off list price, and to provide ISPI with various forms of technical support. (Ex. C at ISPI 0014-15.)
7. In early 2004, with the aid of a court-appointed mediator, the parties resolved their respective claims and entered into a stipulated settlement (the "Bankruptcy Stipulation"), which was ordered by the Bankruptcy Court on March 29, 2004. (Ex. D.)
8. That settlement required SimplexGrinnell to pay $1,100,000 to ISPI (Id. ¶ 2), and voided all prior agreements between the parties, "whether express or implied, based upon any written or oral agreements, statements or correspondence, course of conduct or otherwise" (id. ¶ 5), including the preliminary injunction issued by the Bankruptcy Court (id. ¶ 3).
9. Although the parties agreed to terminate their prior business relationship, the agreement provided ISPI with certain rights above other competitors with respect to ISPI's customer base existing as of the time of the Stipulation. Specifically, paragraph nine of the Bankruptcy Stipulation requires SimplexGrinnell to "sell service parts (currently identified by SimplexGrinnell with a six-digit product identification number), including 'patches' and 'fixes' to [ISPI] for the Existing Customer Base at list price and on a 'cash on delivery' basis." (Id. ¶ 9.) "Service parts" are not further defined by the Stipulation (nor are the terms 'patches' or 'fixes'), but the Stipulation requires SimplexGrinnell to provide ISPI with a price list for service parts. (Id. ¶ 11.)
10. The "Existing Customer Base" referred to in paragraph nine is set forth in a separate document and includes the names and addresses of over 200 sites at which ISPI operated as of February 1, 2004 ("ISPI Customer List"). (Ex. E; see also Ex. D ¶ 8.)
11. The Bankruptcy Stipulation also requires SimplexGrinnell to provide ISPI with technical support in the form of technicians from SimplexGrinnell's "Avenel, New Jersey office, at ordinary time and material rates, on a 'net 30' basis; provided, however, that 'technical support' shall not include '800 number' or 'online access' or access to any other proprietary information or networks of SimplexGrinnell." (Ex. D ¶ 10.)
12. The Bankruptcy Stipulation provides for the applicability of New York law (id. ¶ 20), and further provides that "the prevailing party shall be entitled to recover its reasonable attorneys' fees and costs . . . incurred in connection with any action or proceeding arising out of or related to the enforcement of this Settlement Agreement . . ." (id. ¶ 18).
II. Fire Alarm System Panel Programming Software
13. Two of the fire alarm systems manufactured by SimplexGrinnell, called the 4100 and 4100U systems, lie at the heart of this dispute. In particular, this dispute largely centers on whether the software used to program and configure those systems -- "the Programmers" -- are covered by the requirement of paragraph nine of the Bankruptcy Stipulation of SimplexGrinnell to sell ISPI "service parts . . . including 'patches' and 'fixes.'"
14. Understanding of the fundamentals of these systems comes primarily from the testimony of Andrew Capowski, SimplexGrinnell's current Director of Research and Development who has been with the company for over ten years (Capowski Aff. at 1), Charles LoRocco, a service technician for ISPI (LoRocco Aff. ¶ 1), and ISPI's expert witness, computer science Professor Benjamin Goldberg (Goldberg Rpt. ¶ 1), all of whom the Court found to be credible witnesses.
15. The 4100U is the successor to the 4100 system (Capowski Trial Tr. 45); the "U" in the 4100U stands for "upgrade." (Capowski Dep. 6.) Both of these systems are comprised of "networks of 'points' (smoke detectors, notification devices, etc.) and control panels. . . . contain[ing] CPUs (central processing units) running Simplex software [("panel software")] for controlling interaction with the points and other components of the fire alarm system." (Goldberg Rpt. ¶ 9.) In addition to the panel software, each system also has associated programming software -- i.e., the 4100 Programmer and the 4100U Programmer -- which is "used to configure [the] control panel once the fire alarm system has been installed in a building." (Id. ¶ 10; see also Capowski Trial Tr. 20.) The Programmer's basic function is to configure the corresponding "control panel for a particular installation of the fire alarm system in a building" (Goldberg Rpt. ¶ 11), and to ensure that the control panel knows the system's configuration so that it can properly operate its hardware (Capowski Aff. § 3.4(2)).
16. Although the 4100U Programmer has several additional features and capabilities compared with the 4100 Programmer (see id. § 2.2), the Programmers are functionally equivalent in the most basic sense in that the 4100 Programmer is used to configure a 4100 panel just as the 4100U Programmer configures a 4100U panel. (Capowski Trial Tr. 19.) However, the Programmers are not interchangeable: 4100 panels must be programed with the 4100 Programmer and 4100U panels likewise must be programmed with the 4100U Programmer. (See id.)
17. The Programmer software can run either through a laptop computer or it can be run through an on-site network computer, called a graphic command center ("GCC"). (LoRocco Trial Tr. 77; Capowski Aff. at 2.) In either manner, to access and run the programmer software, a software key -- also known as a "dongle"*fn2 -- must be attached to the computer. (Capowksi Aff. at 2.) Without a dongle, the Programmer will not run. (Capowski Trial Tr. 22.)
18. Each time the Programmer is used, "the computer loads it into the computer's random access memory (RAM), where it remains until the technician finishes making whatever changes to the system configuration may be necessary. This process could take minutes or hours, depending on the extent of the changes." (Capowski Aff. at 2.)
A. Revisions and Versions of the Programmers
19. There are multiple software revisions associated with each Programmer. Specifically, the 4100 Programmer is associated with revisions 8 and 9, and the 4100U Programmer started with revision 10, and is currently up to revision 12.
20. Further, within each revision there are a number of versions. There are currently approximately fifty versions of the 4100U Programmer, spanning revisions 10, 11 and 12. (Ex. P; see also Capowski Trial Tr. 51.) For example, versions 10.01, 10.50, 10.60, 10.61, 10.60.99 and 10.61.01 are all part of revision 10. (Ex. P.)
21. The particular version of the Programmer must match the panel. Thus, not only must 4100U panels be programmed with the 4100U Programmer, as mentioned above, but more specifically, a 4100U panel installed with version 12.01 must be programed with version 12.01 of the 4100U Programmer, rather than a revision 11 Programmer, or even version 12.05 of the software. (Id. at 43-44, 46.)
B. The 4100 Programmer is a "Service Part"
22. SimplexGrinnell does not dispute that ISPI has a right to use the 4100 Programmer to service customers on the ISPI Customer List. Indeed, SimplexGrinnell concedes that through the Bankruptcy Stipulation it granted ISPI an implied limited license to use "SimplexGrinnell's copyrighted panel programming software up to Rev. 9 for the customers, and at the sites, listed on the 'ISPI customer list.'" (P. Mem. 11.) The Bankruptcy Stipulation granted ISPI this license, SimplexGrinnell contends, since the customers on the ISPI Customer List had installed pre-4100U panels that could only be programmed with revisions 9 or earlier. (Id. at 2.)
23. The Bankruptcy Stipulation only requires SimplexGrinnell to sell ISPI "service parts" for customers on the ISPI Customer List, which directly implies that ISPI may then use the parts. (See Ex. D ¶ 9.) Thus, SimplexGrinnell's concession that ISPI may use the 4100 Programmer to service customers on the ISPI Customer List is an implicit admission that the 4100 Programmer is a "service part."
24. This finding is supported by the fact that the sole descriptive indicator of "service parts" in the agreement is items "currently identified by SimplexGrinnell with a six-digit product identification number . . . ." (Id. ¶ 9.) At the time of the Bankruptcy Stipulation in 2004, SimplexGrinnell sent ISPI a price list identifying revisions 8 and 9 of the 4100 Programmer, with, respectively, the six-digit identification numbers 553-806 and 553-854. (2004 Price List, Ex. F at ISPI 0827-28.)
C. The 4100U Programmer is a "Service Part"
25. Not only was the 4100 Programmer designated with a six-digit identification number at the time of the Bankruptcy Stipulation, but so was the 4100U Programmer. SimplexGrinnell's March 2004 price list identifies the "4100U C/D Programmer" with the number 741-213. (Id. at ISPI 0877.) Moreover, the 4100U Programmer continued to be identified on many of SimplexGrinnell's subsequent price lists with the number 741-213. (2005 Price List, Ex. G at ISPI 0038; 2006 Price List, Ex. H at ISPI 0042; 2008 Price List, Ex. J at 0183.)
26. Of course, as SimplexGrinnell rightly contends, it is not necessarily the case that service parts are coterminous with products identified with six-digit numbers -- it may indeed be the case that not all parts represented by six-digit part numbers are service parts and not all service parts are represented by six-digit numbers. However, although the Bankruptcy Stipulation does not equate the two, identification with a six-digit product number at the time of the Bankruptcy Stipulation is strong probative evidence that the product falls within the ambit of "service parts" as used in the Stipulation. Otherwise, the parenthetical description in the Bankruptcy Stipulation that the "service parts" are "currently identified with a six-digit" number -- which is the sole indicator provided by the Stipulation as to the meaning of this term -- would be rendered largely superfluous.
27. In any event, there is ample additional evidence that the 4100U Programmer is a service part.
28. SimplexGrinnell repeatedly communicated to ISPI that the 4100U Programmer was a service part. The above referenced price lists containing the 4100U Programmer were provided pursuant to the requirement of paragraph eleven of the Bankruptcy Stipulation that SimplexGrinnell provide price lists for its "service parts" upon IPSI's written request to the General Counsel of SimplexGrinnell. Indeed, each of the prices lists is attached to an e-mail from SimplexGrinnell's counsel to ISPI. (See Exs. F, G, H, J.) The cover e-mail from SimplexGrinnell's corporate counsel to Andrew Guarino of ISPI attaching the 2006 price list (which includes the 4100U Programmer) states in no uncertain terms that it is attaching a list of "service parts": "Attached please find the quarterly price list for service parts pursuant to the settlement agreement." (Ex. H at ISPI 0039 (emphasis added).)
29. That the legal department repeatedly provided ISPI with "service parts" lists containing the 4100U Programmer and indeed explicitly termed the Programmer a "service part" is significant: the legal department is presumed to be aware of the import of the phrase "service part," and the attendant obligations of SimplexGrinnell with respect to "service parts"pursuant to the Bankruptcy Stipulation.
30. SimplexGrinnell also appears to have designated the 4100U Programmer as a "service part" in its internal operations. On some of the price lists provided to ISPI, the letters "SP" appear next to the entry for the 4100U Programmer. (Id. at ISPI 0042; Ex. J at ISPI 0183.) Vance Butterfield, the former manager of SimplexGrinnell's service parts distribution center, testified that "SP" stood for "service part." (Butterfield Trial Tr. 215.)
31. SimplexGrinnell management considered the 4100U Programmer to be a "service part." Capowski testified that disks containing the 4100U Programmer were "service parts." (Capowski Dep. 12-13.)
32. Moreover, the 4100U Programmer falls within the plain meaning of the term "service part." LoRocco credibly testified that the 4100U Programmer is necessary to servicing a customer site. (LoRocco Trial Tr. 91-96.) Although not necessary for performing standard maintenance and inspection of the fire alarm system (Capowski Trial Tr. 10), a Programmer is necessary to perform functions including changing the sequence of outputs (e.g., lights activating before alarms or vice versa) and altering the volume of a safety broadcast throughout the customer's system (LoRocco Aff. ¶ 9). LoRocco also testified, and Capowski admitted, that a Programmer is necessary to correct certain bugs and error codes and to restore the system after a system crash. (Capowski Trial Tr. 39-42; LoRocco Aff. ¶ 9; LoRocco Trial Tr. 91-96.) These are clearly "service" functions in any ordinary sense of the term, and the 4100U Programmer is a "part" necessary to perform these functions. Accordingly, even though not every service function requires the Programmer, it is a part necessary to meet customers' "service" needs.
33. Finally, as the 4100 Programmer has the same function vis-a-vis a 4100 panel as does the 4100U Programmer to a 4100U panel, it would be illogical for one of the Programmer's to constitute a service part but not the other. Thus, the finding, based on SimplexGrinnell's implicit concession, that the 4100 Programmer is a "service part" further compels the conclusion that the 4100U Programmer is also a service part.
D. Copyright Registrations
34. SimplexGrinnell entered into evidence the copyright registrations demonstrating it as the copyright owner for one version within each of revisions 8 through 11 of the 4100 and 4100U Programmers.
35. Version 8.04 was first published on June 30, 1999, and was registered with the United States Copyright Office effective September 23, 2005. (Ex. 12.)
36. Version 9.02 was first published on May 19, 2000, and was registered with the United States Copyright Office effective July 29, 2005. (Ex. 13.)
37. Version 10.01 -- the first version of the 4100U software -- was first published on March 27, 2001, and was registered with the United States Copyright Office effective July 29, 2005. (Ex. 14.)
38. Version 11.01 was first published on March 27, 2002, and was registered with the United States Copyright Office effective July 29, 2005. (Ex. 19.)
39. SimplexGrinnell also entered into evidence its application for copyright registration of version 12.01, which was submitted on January 8, 2008, and indicates that version 12.01 was first published on February 12, 2006. (Exs. 23 & 24.)
40. Although SimplexGrinnell asserts that revision 12 is registered, a search of the records of the United States Copyright Office indicates that neither version 12.01 nor any other version within revision 12 is registered. Indeed, the search revealed that the above-referenced versions for which SimplexGrinnell has documented the registration (versions 8.04, 9.02, 10.01, and 11.01) are the only four versions of the programming software with existing copyright registrations.
III. ISPI's Access To and Use of the Programmers
41. During the time ISPI functioned as the equivalent of a SimplexGrinnell branch office, it was provided with the branch releases of the Programmer software; thus, ISPI has had access to the early versions of the 4100 and 4100U Programmers since their initial releases. (Guarino Trial Tr. 108-10, 124.)
42. During the pendency of the Bankruptcy Proceedings, ISPI was further provided with newer revisions of the Programmer. To comply with the preliminary injunction issued by the Bankruptcy Court in 2003, William Mitchell, who was at the time SimplexGrinnell's associate general counsel, provided ISPI with various disks containing all of the then-available versions of the software to date, consistent with materials that had been furnished to all SimplexGrinnell branch offices. (Guarino Aff. ¶25; Mitchell P.I. Hr'g Tr. 210.)*fn3
43. Accordingly, ISPI was in possession of the 4100U Programmer at the time of the execution of the Bankruptcy Stipulation (Guarino Trial Tr. 123), although none of ISPI's existing customers had 4100U panels installed as of that time (see D. Proposed Findings ¶ 18).
44. Throughout the years, as technology advanced, so did the means for obtaining software revisions. Initially, the software was available on a floppy disk, and that eventually evolved to a compact disk. Eventually, with an appropriate password, the 4100U Programmer could be downloaded from the internet through SimplexGrinnell's website. (Barros Trial Tr. 71; Guarino Trial Tr. 134.)
45. At some point prior to the execution of the Bankruptcy Stipulation, SimplexGrinnell provided Guarino with a password that allowed ISPI to access SimplexGrinnell's website to download revisions and updates to the 4100U Programmer. (Guarino Trial Tr. 113; Guarino Aff. ¶ 26.)
46. This password continued to work for some period of time following the execution of the Bankruptcy Stipulation, and with this password, ISPI continued to access SimplexGrinnell's website to download software revisions. (Guarino Trial Tr. 133-34; Guarino Aff. ¶ 26.) ISPI did not limit its use of the software downloaded from the website to the service of customers on the ISPI Customer List. (See LoRocco Trial Tr. 80-81.)
47. At some point in 2005 or 2006, SimplexGrinnell deactivated the password and cut off ISPI's access to the SimplexGrinnell website. (Guarino Trial Tr. 133; Guarino Aff. ¶ 27.)
48. Thereafter, SimplexGrinnell did not provide ISPI with alternative means to obtain new versions of the Programmer. ISPI requested such products, but SimplexGrinnell did not provide them. (Guarino Trial Tr. 134.)
49. However, SimplexGrinnell never sought to have ISPI return the software it already possessed. (Guarino Aff. ¶ 30; ...